When it comes to investing, most of us have experienced or heard stories of great success or of great failure. However, amidst the economic turmoil, an evolving investment advisory industry and technological innovation, investors are now benefiting from the rise of Independent Financial Planners and superior investment options.
Traditionally, most investments, including superannuation, were accessed via a pooled investment vehicle, such as a unit trust or managed fund with direct share investments. These vehicles expose you to the irrational behaviour of other investors, are not transparent, may have liquidity issues and tax consequences are outside of your control. Buying into a managed fund with substantial unrealised gains means that if the fund suddenly
sells those assets, you may get a surprise tax bill.
Separately Managed Accounts (SMA’s) and Individually Managed Accounts (IMA’s) are more recent options gaining prominence. Clients maintain beneficial ownership of the direct shares, which is key, however, there are distinct differences.
An SMA is a product – each investor gets the same model portfolio
An SMA client invests in a model portfolio managed by a professional investment manager. Each investor in the SMA holds the same stocks (subject to some trading cost rules), so when the SMA portfolio manager changes the portfolio, the change is made to all investors’ portfolios, irrespective of their capital loss or gain position or taxation consequences.
SMA’s are accessed via a platform. Usually, a financial advisory firm will pre-select their preferred professional SMA Manager and a platform that provides the administration and reporting. The financial advisory firm may ‘white label’ an SMA Manager under their own brand.
An IMA is a service – each investor’s portfolio is individual and tailored for them
IMA’s provide a superior approach to portfolio management which may be described as “bespoke” or “tailored” for each client.
While IMA portfolio’s may ultimately hold common stocks, each portfolio is considered, built and maintained on an individual basis. You also have the option of retaining existing equities and they can be transferred in and out without triggering a capital event.
Every share purchase or sale is individually considered for every client. And when you consider the adage that two of the most important aspects of investing are “what you paid for it and what you sell it for”, this
becomes a very significant IMA attribute. In contrast, SMA’s are mandated to buy into the model portfolio regardless of price when a client invests.
Having greater control, transparency and flexibility allows for superior
risk management and taxation outcomes, and these investment methodology attributes are the backbone for better risk vs reward returns.
An IMA Portfolio service suits investors that value personalized service and are concerned about capital preservation.
This article was published in Matters Magazine – 21st August 2018